1. China Cedes Top LNG Buyer Spot to Japan Amid Weak Demand
- China’s LNG imports in 2022 are on track to record their first major decline since 2006, as high spot prices and weak domestic demand coming from the manufacturing sector cooled down purchasing activity.
- Whilst China’s appetite for LNG was primarily coming from the government’s willingness to switch away from coal, Beijing has now come full circle and has been maximizing coal output, environmental concerns notwithstanding.
- Piped natural gas from Russia and Turkmenistan, cheaper because of oil pegs, has also been squeezing out LNG imports, with China expected to reach full capacity at the Power of Siberia pipeline by 2025.
- China’s May imports of LNG are set to total 4.7 million tons LNG, more than 2 million tons lower year-on-year, with the United States and Australia seeing the largest drops in buying.
2. US Return to Pre-Pandemic Crude Production in 2023
- Even though Russia’s invasion of Ukraine has created ideal conditions for oil companies to ramp up production, prospects for incremental US shale growth have not changed whatsoever.
- According to an average of five major forecasters, US crude output will grow 900,000 b/d this year and is set to reach pre-pandemic levels only by mid-2023, with next year also seeing a relatively modest 800,000 b/d year-on-year increase.
- Platts argues that now, when publicly traded…
1. China Cedes Top LNG Buyer Spot to Japan Amid Weak Demand
- China’s LNG imports in 2022 are on track to record their first major decline since 2006, as high spot prices and weak domestic demand coming from the manufacturing sector cooled down purchasing activity.
- Whilst China’s appetite for LNG was primarily coming from the government’s willingness to switch away from coal, Beijing has now come full circle and has been maximizing coal output, environmental concerns notwithstanding.
- Piped natural gas from Russia and Turkmenistan, cheaper because of oil pegs, has also been squeezing out LNG imports, with China expected to reach full capacity at the Power of Siberia pipeline by 2025.
- China’s May imports of LNG are set to total 4.7 million tons LNG, more than 2 million tons lower year-on-year, with the United States and Australia seeing the largest drops in buying.
2. US Return to Pre-Pandemic Crude Production in 2023
- Even though Russia’s invasion of Ukraine has created ideal conditions for oil companies to ramp up production, prospects for incremental US shale growth have not changed whatsoever.
- According to an average of five major forecasters, US crude output will grow 900,000 b/d this year and is set to reach pre-pandemic levels only by mid-2023, with next year also seeing a relatively modest 800,000 b/d year-on-year increase.
- Platts argues that now, when publicly traded independent oil companies give back a third of their cash flow back to investors, shale’s new breakeven is within the $60-70 per barrel range.
- Yet even with almost all producers firmly in the profit zone, vast supply chain disruptions to drilling equipment make it impossible to drill as quickly as was the case in the past, with drilling-to-pumping lead time tripling to almost one year.
3. Increased Hurricane Risk A Bad Match with Low Inventories
- The diesel tightness might be further exacerbated by expectations of above-average hurricane activity, with the NOAA predicting that 6-10 storms might transform into hurricanes.
- Between 3 and 6 of those hurricanes would probably become major ones (winds above 111 miles per hour), implying that diesel inventories would need to build before peak hurricane risk hits in August-September.
- There have been early signs of a trend reversal, with the past two weekly EIA reports indicating marginal diesel stock builds across the US, coming exclusively from the Gulf Coast.
- Whilst there is no guarantee that hurricanes will target main refinery hubs in the US Gulf Coast and not Florida or Alabama, last year’s destruction of the 255,000 b/d Alliance refinery in Louisiana is a noteworthy reminder of what might happen.
4. EU Renewables Package Might Be Only Fraction of Required Funding
- With the European Commission revealing its revamped RePowerEU mandate that seeks to reduce the EU’s dependence on Russian fossil fuels, Rystad argues the set of measures proposed is not enough.
- With Brussels aiming to bring online 600 GW new solar capacity by 2030, triple of currently installed capacity, solar power alone would need investments going above €450 billion, double the RePowerEU budget.
- Simultaneously, if the 45% renewables target is to be reached, 450-490 GW of wind capacity would need to be installed by the end of the decade, requiring 820 billion in investments.
- Given the huge discrepancy between capacity needs and financing, any prospective increase in climate ambition might trigger further increases along the supply chain, be it from metals or polysilicon prices.
- China’s COVID-induced lockdowns and the subsequent drop in crude demand have wreaked havoc on the shipping markets, Argus Media reports, as Asian freight costs plummeted.
- The ever-decreasing of West African volumes going towards China and Denmark’s banning of ship-to-ship operations in waters off Skagen, the usual place where for VLCC loadings of Urals, have weakened demand for VLCC charters considerably.
- With large parts of the previously active VLCC fleet forced to compete with Suezmax tankers, the end result was a zero-sum game for both as time-charter equivalent earnings have halved over the past month.
- The intrusion of Russia’s Urals flows into India has been an important development across Asia, providing a boost for Aframax loadings as many charterers are lacking access to large-scale financing.
6. France's Nuclear Generation Set for Record-Low Output
- French nuclear generation is set to hit a record-low output this month, averaging 27.6 GW over May 1-25, as half of France’s vast nuclear fleet remains unavailable, Platts reports.
- Having its fair share of force majeure events already, the nuclear operator EDF has seen the Penly 2 reactor suffer an unplanned outage this week, while the return of the Cruas 4 was delayed into mid-June.
- With spot French power prices averaging some €180 per MWh this week, it has officially clinched its status as having the most expensive electricity in Europe, some €50 per MWh above Germany.
- As if the above were not enough, France’s unions are set to start another strike on June 01, adding further vacillation into the market.
7. Copper Weakens on China Demand Weakness
- Forecasts for copper prices have been sliding down as China’s COVID lockdowns added to structural risks of lower economic growth, losing steam after hitting a record-high of $10,845/mt in early March.
- The three-month copper on the London Metal Exchange dropped back to $9,400/mt, which might still be only halfway through before bottoming out, as Citi and BNP Paribas expect annual prices to average $8,500-8,700 per metric ton.
- At the same time, despite plummeting construction rates in China and stagnant supplies to the automotive industry, the long-term prospects of copper remain overwhelmingly bullish.
- Weak investment in mining amidst increasing demand coming from EV producers will help lift prices, with Wood Mac forecasting a 10-year supply gap of up to 5 million tonnes of copper to 2031.
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